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Iraqi forces free hundreds of civilians in Mosul Old City battles as death toll mounts
* FTSE 100 up 0.4 pct on weak pound, strong miners
* Mid-caps hit fresh record high, Barclays recommends domestics
* Micro Focus wilts as CS warns on legacy tech
* Macquarie upgrade drives Cairn Energy higher
* Short seller targets Paysafe (ADVISORY - Follow European and UK stock markets in real time on the Reuters Live Markets blog on Eikon, see cpurl://apps.cp./cms/?pageId=livemarkets)
By Helen Reid
LONDON, May 22 Britain's exporter-heavy benchmark share index outperformed European benchmarks on Monday as the pound retreated below the psychologically important $1.30 level, while individual broker updates sent some stocks lower.
Sterling fell after two weekend polls showed Prime Minister Theresa May's ruling Conservatives losing ground after parts of its election manifesto came under fire. The pound had risen in the last month as some expected a landslide win would allow for smoother exit negotiations with the European Union.
Along with strength in commodities stocks, the weaker pound propelled the FTSE 100 to a 0.4 percent gain, holding near last week's record highs, and outperforming the Euro zone STOXX 600 which fell 0.2 percent.
Domestically focused mid-cap stocks outperformed blue-chips and hit a new high as Barclays recommended investors "buy British" and brave this unloved area of the market.
The FTSE 250 is up 10.1 percent this year, double the gains of the large-cap benchmark.
"We think the nascent outperformance of domestically focused UK stocks has further to run," said Barclays analysts, who see the mid-caps' deep discount to the FTSE 100 as unmerited.
Marks & Spencer rose to the top of the FTSE in later trading, gaining 3 percent. Goldman Sachs said several UK hedge funds were buying the stock in the run-up to its results on Wednesday.
While M&A activity drove European shares, broker updates fuelled the biggest moves among British stocks.
Micro Focus fell 3.5 percent, making its shares the top FTSE losers after Credit Suisse research into legacy technology led them to downgrade the firm.
The bank's survey of 100 CIOs found the industry was moving away from COBOL, a programming language widely used in business and finance, and the base for some Micro Focus tools and products.
"Just as investors finally seem to have accepted management's view that legacy assets are sticky, we think the risks to this model are starting to materialise," Credit Suisse analysts said.
Meanwhile, Burberry joined Marks & Spencer and Merlin among the top gainers, after Credit Suisse analysts said a meeting with management gave them greater confidence the new CFO and COO would be able to deliver cost savings.
Elsewhere, testing company Intertek jumped to a record high after Kepler Cheuvreux upgraded it to a "buy" in a note predicting an inflection for the sector.
Miners Antofagasta and Rio Tinto underpinned gains, up 1.3 to 1.5 percent, on stronger metals prices.
Among mid-caps, Cairn Energy benefited from a target price upgrade from Macquarie.
"We recommend buying the shares ahead of share price appreciation associated with Senegal progress and commencement of cash flow generation in the UK North Sea," analysts said.
Paysafe pared losses to end 1.8 percent down after anonymous short-seller outfit Spotlight Research targeted the company again, with two new reports.
The firm's shares had plummeted 40 percent in December after an initial report from the short seller. They have since recovered and hit an 11-year high on Friday. (Editing by Louise Ireland)